As any investor knows, timing is everything when it comes to the stock market. And while there are a number of factors that can affect prices, one of the most reliable predictors is seasonality. Just as flowers bloom in the spring and grapes are harvested in the fall, certain assets tend to follow predictable patterns throughout the year. Of course, there are always exceptions to these trends, but by understanding seasonality, investors can gain a valuable edge in the market.

Gold Seasonal Patterns

Gold and the US dollar are two of the most important financial assets in the world. While they are highly inversely correlated, meaning that when one rises, the other falls, they have historically had a strong start to the year for completely unrelated reasons. The reason for this is that both gold and the US dollar are seen as safe havens by investors. When there is uncertainty in the markets, investors tend to flock to these assets in order to protect their portfolios. While their historical starts to the year are unrelated, they both tend to benefit from market uncertainty. As a result, they are two of the most important assets for any investor to keep an eye on.

Graph Showing the Average Monthly Returns for Gold

Chart Showing Gain Frequency for Gold

January is gold's best month of the year. According to historical data, gold has an average return of 1.6% in the month of January. December also shows strong seasonality for gold, with an average return of 1.5%. May and September are also favorable months for investing in gold, with average returns of 1.3% and 1.2%, respectively. So if you're looking to add some precious metal to your portfolio in the new year, these numbers suggest that now may be a good time to do so.

Cultural factors underlying the Indian wedding season are what make December and January bullish months for gold. Around 10 million weddings are celebrated in India every year, with the wedding season typically running from October through March. This is when temperatures are more agreeable and religious festivals fall on weekends.

During this time of year, purchases of gold jewellery, decorations, and lucky charms reach their peak. Many brides in India wear gold jewellery as part of their wedding attire, and it is also customary to give gold gifts to the bride and groom. Gold is seen as a symbol of good fortune and is thought to bring blessings to the newlyweds. Due to the high demand for gold during the wedding season, prices often go up during this time of year. 

US Dollar Seasonal Patterns

Average Monthly Returns for the US Dollar

Chart Showing Gain Frequency of the US Dollar Index

January is also the best month for the US dollar, while December is the worst. The US dollar (DXY) index returned 1% on average in January, after falling 0.9% in December. The 65% positive return for the US dollar in January is very strong, while it was substantially weak at 36% in December.

The weakening of the US dollar at the end of the year is attributable to domestic tax laws in the United States.

Many companies in the United States tend to underreport cash on their balance sheets at year-end in order to reduce their tax bills. They transfer money to foreign subsidiaries' accounts, which raises the demand for foreign currencies and temporarily devalues the US dollar. In addition, companies may also engage in other activities such as selling assets at a loss or delaying recognition of revenue.

As the new year begins, things change quickly for businesses as they repatriate money held abroad back to the United States. This repatriation of funds drives up the demand for the US dollar, as businesses seek to exchange their foreign currency for dollars. In turn, this increased demand for the US dollar causes its value to rise relative to other currencies.

Protect Your Portfolio

If you are looking for a safe investment that will hold its value even in times of high inflation, precious metals may be the answer for you. Check out our FREE eBook to learn more about using precious metals as a hedge against inflation. Our team at GMR Gold can help you get started with your investments and provide guidance along the way.

GMR Gold was created to serve as a safe and stable diversification partner when buying, selling, and trading gold, silver, platinum, and palladium. Let us advise you on new products, portfolio diversification, IRA and 401(k) options, valuation of your collection, and other matters related to the precious metals market. Call us today at 877-795-9585 or fill out our online contact form to learn more about our solid solutions using precious metals to diversify your portfolio.

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